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On Thursday, Citi analyst Yong Hong Tan upgraded Malayan Banking Bhd (MAY:MK), also known as Maybank, from Neutral to Buy, setting a new price target of MYR11.10. The upgrade follows Maybank’s first-quarter 2025 profits, which showed a moderate increase, with earnings of RM2,589 million, up 2% quarter-on-quarter and 4% year-on-year. This performance represents 25% and 24% of Citi’s and the consensus full-year 2025 estimates, respectively.
A key factor behind the upgrade was management’s commitment to managing the net interest margin (NIM) amid acknowledging the potential downside to their 5-6% loan growth guidance. The bank’s Common Equity Tier-1 (CET-1) ratio remained steady quarter-on-quarter at 14.9% following the second half of 2024 dividend payout and adjustments to risk-weighted assets due to Basel reforms. Furthermore, Citi dismissed concerns over M&A risks, which supports the bank’s ability to maintain a cash payout ratio greater than 70%, leading to a dividend yield of over 6%.
Tan highlighted several other positive themes in Maybank’s report, including a credit cost of 25 basis points despite an uptick in gross impaired loans from domestic hire purchase and the inclusion of tariff risk. The bank’s risk exposure in Greater China has been adequately provided for. Additionally, management’s shift in focus towards protecting NIM, moving away from aggressive mortgage pricing competition, was also seen as a positive sign.
Maybank’s M25+ plan is expected to incur expenditures of RM400 million, with 60% accounting for operational expenses. Despite these costs, Citi expects a stable cost-income ratio, as spending is likely to align with revenue growth. Citing the bank’s robust capital position and the potential for growing loans with better profitability, Citi has given the green light for investors to buy Maybank shares, moving away from previous concerns over capital that had led to share price underperformance.
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